Consultation enables an employers workforce to provide views

on changes being proposed to a pension scheme before any final

decisions are taken. It should also raise awareness of the employers
pension arrangements and encourage take up of membership or
result in fewer opt outs.
TPR has produced guidance for employers on the duty to consult:
http://www.thepensionsregulator.gov.uk/docs/employer-duty-toconsult-on-scheme-changes.pdf

EXAMPLES WHERE CONSULTATION WOULDNT

BE REQUIRED
An employer currently offers its employees a GSHP but there
are no arrangements in place for either employer or employee
contributions effectively a shell arrangement. Introducing
a new scheme for AE would not trigger consultation.

Where employees have been automatically enrolled into an

The following apply to money purchase OPS and GPP/GSHP except

where indicated:

AE scheme, the statutory communications issued at outset

explain when phasing in of contributions will apply, in line with
the statutory requirements under Pensions Act 2008. In this
situation, there is no requirement to consult with employees
before implementing the actual increases in employee
contributions.

An increase in the normal retirement age as set out in the scheme

As long as an employers contributions dont change and

LISTED CHANGES THAT TRIGGER

A CONSULTATION

rules (OPS only)

Closure to new entrants where active members remain in the

scheme (OPS only)

S topping future accrual of benefits (OPS only)

Stopping or reducing employer contributions
Requiring members to contribute where previously there was no
requirement

Increasing member contributions

Further listed changes apply to final salary schemes. There is no
requirement to consult if a listed change is excluded under the
legislation the most important being changes made to comply with
a statutory requirement. Further details are included in Department
of Work & Pensions (DWP) guidance:
http://webarchive.nationalarchives.gov.uk/20130128102031/http://
www.dwp.gov.uk/docs/occ-personal-pens-schemes-regs06.pdf
Employers need to consider the appropriateness of an existing
scheme and whether it delivers good member outcomes. They may
find that an existing scheme or GPP is unsuitable for AE purposes,
particularly in light of the new governance requirements applying to
defined contribution workplace pension schemes from 6 April 2015.
As already mentioned, introducing a new AE scheme or GPP wont
trigger a consultation in itself. However, if current arrangements
are in place and the new scheme will result in either a reduction
in employer contributions or increase in employee contributions, a
consultation could be required.

EXAMPLES OF CHANGES REQUIRING

CONSULTATION
Since staging, an employer has been funding the minimum
level of contributions themselves with contributions based on
members basic pay. The employer considers this will become too
expensive when the minimum contribution increases to 6% in
October 2017. If the employer wishes to introduce a requirement
that members would need to contribute too, and has more than
50 employees, this would trigger the consultation requirement.

Following a review of its existing pension arrangements, an

employer chooses to wind up its OPS and replace it with a
GPP. Consultation would be triggered if there are more than
50 employees, as benefit accrual and employers contributions
to an OPS will cease. Following consultation and assuming the
decision is taken to proceed, members must also be provided
with a notice period to wind up the scheme as specified in
the scheme rules. The notice period is usually one month for
contracted in schemes and three months if contracted out.

members contributions dont increase, switching from one GPP

provider to another wont trigger a requirement to consult.

An employer has an existing QWPS they wish to use for AE. The
current scheme offers a 5% employer contribution provided
employees match this contribution. As the AE regulations only
stipulate minimum contribution levels, higher contributions
levels are permitted provided there is no intent to encourage
employees to opt out. This shouldnt apply in this example as
the proposed contribution level is in keeping with the current
arrangement. As there are no changes to the existing provisions,
this doesnt trigger a consultation.
Even where there is no statutory requirement to consult, it would
be good practice for employers to consider consulting on any matter
affecting their employees pension rights.

HOW DOES THE CONSULTATION PROCESS

WORK?
Consultation takes place with representatives of the affected scheme
members such as a trade union. In the absence of an employee
representative, it may be necessary to elect member representatives
or deal directly with the affected members. The period for
consultation must take into account all the circumstances and nature
of the change and shouldnt be less than 60 days. A longer period
may be appropriate.
Before consultation commences, the employer must provide written
information to the affected members and their representatives. This
will describe the proposed change, its implications on the scheme, its
members, and timescales.
Once the consultation has concluded, the employer, or other party
proposing the change must consider all responses before deciding
whether to proceed. While the employer, or other party wont need
members consent to implement changes, they may find it difficult to
demonstrate they are promoting good member outcomes if TPR deems
the changes to be unfair or not in members best interests.

FAILURE TO CONSULT
In exceptional circumstances it may not be practical for an employer
to consult and TPR may agree to waive or relax any of the consultation
requirements, provided members best interests arent prejudiced.
Listed changes made to schemes without consultation will still be
valid but members (or their representatives) may complain to TPR
who can issue an improvement notice or impose financial penalties.

techtalk 11